Murr v. Selag Corp., 16070
| Citation | 747 P.2d 1302,113 Idaho 773 |
| Decision Date | 02 December 1987 |
| Docket Number | No. 16070,16070 |
| Parties | William H. MURR and Marjorie Murr, husband and wife, Plaintiffs-Respondents, v. SELAG CORPORATION, a/k/a Selag Development Co., a Delaware corporation, and Seafirst Mortgage Corporation, a corporation, Defendants-Appellants, and Seafirst Mortgage Corporation, a corporation, Third-party Plaintiff-Appellant. |
| Court | Court of Appeals of Idaho |
Clemons, Cosho & Humphrey, Boise and Douglas J. Smart of Smith, Smart, Hancock & Tabler, Seattle, Wash., for defendants-appellants.
Jon J. Shindurling of May, May, Sudweeks, Shindurling & Stubbs, Twin Falls, for plaintiffs-respondents.
Selag Corporation and Seafirst Mortgage Corporation bring this appeal from a district court judgment rescinding a land sale contract and awarding restitution and attorney fees to respondents, the Murrs. The principal questions we are asked to decide are: (1) whether the district court erred in holding that the purchasers of real estate had proven entitlement to rescission of the sale and restitutionary relief because of a mutual mistake and misrepresentation concerning the size of the parcel; (2) whether the court erred in holding that Seafirst, who was not a party to the sale, assumed joint liability with the seller for full restitutionary relief to the purchaser; and (3) whether the court erred in awarding attorney fees, costs and prejudgment interest against both Seafirst and the seller, Selag Corporation. For reasons set forth in this opinion, we affirm in part, reverse in part and remand.
In 1980 Selag acquired acreage known as Lot 1, Block 1, of LeBaron Estates in Blaine County. The same year, Selag's real estate brokers entered into negotiations with William and Marjorie Murr for sale of the property. The Murrs disclosed their intention to subdivide the tract into one acre lots for the construction of single family homes. Based on a plat recorded in 1973, the real estate agents told the Murrs that the property contained 5.64 acres and assured the Murrs that they could subdivide the property into five one-acre lots, the minimum lot size permitted in the area by local zoning laws. For this purpose, the Murrs determined that they could invest $21,000 per contemplated lot. Accordingly, after negotiations, the parties settled on a contract price of $105,000. Selag conveyed the property to the Murrs by warranty deed on October 9, 1980. The Murrs' payment consisted of cash; an assumption of two existing deeds of trust; and execution of a $48,000 note, secured by a third deed of trust in favor of Selag. A few months later, the Murrs were told by their own commissioned surveyor that the LeBaron Estates property had been erroneously surveyed and platted; that, as a result, the tract purchased by the Murrs encroached on the adjoining property and that the tract actually contained only 5.24 acres. According to the surveyor, this would not have been sufficient to accomodate five one-acre lots plus the necessary access road. The Murrs notified Selag of their intent to rescind and to obtain a refund of money paid. No settlement was reached and this suit followed.
The Murrs sued Selag, asking not for rescission but for damages or for a price reduction of at least $21,000. They later amended their complaint to add rescission to their request for relief. By a second amendment, over a year later, the Murrs added Seafirst as a defendant. 1 Seafirst became involved in this controversy through another unrelated, but equally unfortunate, venture by Selag.
In 1979 Selag had borrowed $1,400,000 from Seafirst to construct a condominium project in Blaine County. The project was not successful. Selag defaulted on its loan. Seafirst's security, the unsold condominium units, proved to be worth less than the unpaid loan balance. To avoid a foreclosure and to limit the personal liability of Fred Apsey, the principal owner of Selag, an agreement was reached among Seafirst, Selag and Apsey. The document needs to be mentioned only briefly here. We will simply note that, pursuant to the agreement, Selag transferred all of its assets, including the Murrs' $48,000 note and deed of trust to Seafirst, subject to certain pending third-party claims against Selag, Apsey or the transferred assets. The Murrs' action against Selag for misrepresenting the acreage of the LeBaron Estate property was one such claim. At that time, the Murrs had sued only Selag. Their complaint did not seek rescission, only damages or a reduction in the purchase price of the property.
The agreement among Seafirst, Apsey and Selag further provided for a "Claims Account," consisting of funds Seafirst had retained as part of its security for the $1,400,000 loan to Selag. The agreement stated that either Seafirst or Apsey would "handle" each of the claims so as to achieve an agreeable and reasonable settlement of each. We will discuss these critical features of the agreement later.
The Murrs' suit against Selag and Seafirst went to trial without a jury. The district court found that Selag's agents had misrepresented the acreage to the Murrs and that the parties had been mutually mistaken about the total acreage. The court found that the shortage prevented the property's subdivision into five one-acre lots, destroying the reason behind the purchase and requiring rescission and restitution. The court further found that, in the agreement mentioned above, Seafirst had assumed any liability Selag had toward the Murrs. The court ordered Seafirst and Selag to reimburse the Murrs for all payments, taxes and expenses incurred as a result of the sale, placing a constructive trust on the "Claims Account" for this purpose. Finally, the court awarded costs and attorney fees to the Murrs for the third-party claims and for the main suit, as consequential damages. Additionally, the court found that the main suit had been defended frivolously, unreasonably and without foundation by both Selag and Seafirst. Selag and Seafirst objected to the court's findings and conclusions and to the award of fees. They moved for a new trial. They received no relief and filed this appeal.
At trial, the Murrs concentrated their efforts on proving their right to have the sale of the LeBaron tract rescinded. They did not pursue their earlier request for abatement of the purchase price as a possible remedy. They sought to prove that a reduction in the acreage from 5.64 acres to 5.24 acres destroyed their plans to subdivide the tract into five one-acre lots. Their position was that a half acre or more of the tract would be used to meet state highway access and county road requirements, leaving one or more of the proposed lots below minimum size. Selag and Seafirst contested the Murrs' assertion that the property could not be developed into five lots. They pointed to the fact that the Murrs never submitted any formal application or proposed plat of a five-lot subdivision to the county planning and zoning commission for approval. Thus, they contend that the Murrs failed to prove, by competent and sufficient evidence, that a five-lot subdivision would not have been approved in spite of the slight reduction in acreage.
The Murrs called a professional engineer who was then the appointed engineer for Blaine County. The engineer had consulting experience with the planning and zoning commission and the county commissioners. A land planner--consultant, who had considerable experience in the county and who was a former planning and zoning commissioner, also testified for the Murrs. Based on his experience and knowledge, each expert testified, without objection, that a five-lot subdivision stood little chance of approval by the county. The engineer expressed the opinion that the discovered encroachment left the proposed five-lot subdivision "dead in the water." Both experts concluded that it would not be worthwhile for the Murrs to submit a formal application for a five-lot subdivision which would depend upon a deviation from strict access requirements. Selag and Seafirst then called the county planning director. While he indicated that access problems might be solved, he admitted that any application would probably not be approved until the encroachment was "cleared up." We conclude that there was competent and sufficient evidence to show that a five-lot subdivision would likely not have been approved because of the mistakes in the acreage and boundaries of the tract.
Selag and Seafirst next contend that even if the Murrs could have obtained only four building lots from the tract, this entitled them only to an abatement of the purchase price, not to rescission. Rescission is an equitable remedy aimed at restoring the parties to their pre-contract status quo, Blinzler v. Andrews, 94 Idaho 215, 485 P.2d 957 (1971), overruled on other grounds, Barnard & Son, Inc. v. Akins, 109 Idaho 466, 708 P.2d 871 (1985), and is proper where a mutual mistake of fact is material or fundamental to the creation of a contract. 77 AM.JUR.2D Vendor And Purchaser §§ 538, 552 (1975); RESTATEMENT (SECOND) OF CONTRACTS § 152 chapter 6 (1981) (hereinafter RESTATEMENT); D. DOBBS, HANDBOOK ON THE LAW OF REMEDIES § 4.3 at 256 (1973) (hereinafter DOBBS).
No fault is necessary to warrant rescission of such a contract, though rescission is also available where the defendant is guilty of fault, such as fraud. But it does not follow that rescission is given for every serious mistake. The parties may have changed position, or restoration may be extremely difficult to compute with any assurance of accuracy, or rescission and restitution may be a radical and destructive remedy where an award of damages may repair the mistake with a minimum of dislocation. Thus the remedy is neither given nor withheld automatically, but is awarded as a matter of judgment.
Dobbs at 256. See generally Annotation, Mistake In Quantity Of Land, Relief, 1 A.L.R.2d 9 (1948).
Here, Seafirst and Selag contend...
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